Keir Starmer’s proposed modifications to the tax reduction on the inheritance of farmland dangers hitting farmers greater than folks utilizing the loophole for tax avoidance, new analysis suggests.
Evaluation from Tax Coverage Associates suggests {that a} third of the estates affected by the Chancellor’s modifications are owned by tax-avoiding traders, whereas the bulk are owned by working farmers.
“This means the Price range proposal doesn’t go far sufficient to cease avoidance, however goes too far in the way it applies to precise farms,” Dan Neidle, founding father of the assume tank mentioned.
Farmers had been beforehand in a position to declare 100 per cent reduction from inheritance tax on agricultural land.
Nonetheless, underneath measures introduced within the Price range, they must pay inheritance tax on the worth of land above £1m from April 2026, though they are going to nonetheless get a 50 per cent reduction.
Rachel Reeves mentioned the measures would “make sure that we proceed to guard small household farms”, whereas additionally clamping down on tax avoidance.
The Treasury estimated that solely 1 / 4 of farms can be impacted, however the Nationwide Farmers’ Union (NFU) mentioned that nearer to three-quarters of farms had been over the £1m threshold.
However Neidle identified that the variety of farms was not the identical because the variety of estates which find yourself paying inheritance tax. “The NFU are measuring the unsuitable factor,” he mentioned.
He additionally famous that the brink at which farmers began paying inheritance tax would, in impact, be nearer £2m. This was resulting from a variety of different tax reliefs, such because the nil price on residencies handed onto kids.
Primarily based on tax receipt knowledge from 2021-22, solely 383 estates would have needed to pay the levy, which is way nearer to the Treasury’s estimate than the NFU’s.
The analysis additionally suggests round a 3rd of these estates held AIM shares, which possible signifies that the land is held to profit from beneficial tax remedy relatively than for farming.
“Farmers are impossible to carry AIM shares…We might be fairly assured that a few third of those are simply folks participating in tax planning, not precise farmers,” he mentioned.
Round 300 extra lower-value estates which can proceed to be fully exempt from inheritance tax additionally maintain AIM shares, he mentioned.
In brief, Neidle mentioned some farmers will “pay an excessive amount of” whereas many who are usually not farmers will preserve utilizing farmland as an “IHT planning car”.
Instead of the federal government’s coverage, Neidle mentioned that the brink may very well be massively elevated however {that a} clawback needs to be launched if the land was then bought on.
“Shield actual farmers with an entire exemption from inheritance tax (topic to a really giant cap, say £20m). On the identical time, counter avoidance by clawing-back the exemption if a farmer’s heirs promote the farm,” he argued.
“This might obtain the Authorities’s goals in a method that’s each fairer and more practical – and plausibly elevate about the identical quantity of income.”
